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Canada's first marijuana-themed exchange-traded fund gained in early trading on Wednesday morning, feeding an ongoing fascination with pot stocks that can't end well.

The Horizons Medical Marijuana Life Sciences ETF (HMMJ), which provides instant exposure to 16 stocks, rose as high as $10.50 soon after its debut, up 5 per cent.

The ETF closed Wednesday at $10.25, up 2.5 per cent.

It becomes the first fund to provide diversified exposure to U.S. and Canadian-listed stocks that are involved with medical marijuana bioengineering and production.

"Production" can mean gardening. Scotts Miracle-Gro Co. has a 10 per cent weighting in the fund, which serves as a good backbone: It's a profitable company, with a $5.5-billion (U.S.) market capitalization and a valuation – 23-times trailing profit – that's in line with the broader market.

Most other members of this ETF, though, are highly speculative, based on their relatively small market capitalizations and an investor frenzy that has driven some share prices into bubbly territory.

Aurora Cannabis Inc. also has a 10 per cent weighting – the maximum allowed – given its value of $850-million (Canadian). The company hasn't produced a profit yet, but assuming it meets expectations next year, the shares trade at a lofty 35-times profit.

Aphria Inc. is profitable and has a value of about $900-million. This profit, though, makes the shares look extremely pricey, given that they trade with a price-to-earnings ratio of 190.

Supreme Pharmaceuticals Inc. isn't profitable, and isn't expected to be profitable. Yet the share price has risen 365 per cent over the past 12 months.

And Canopy Growth Corp., the one with the catchy ticker symbol (WEED), has risen 150 per cent since October, pushing the stock's valuation to a market-leading 330-times expected 2018 profit.

We get it: The ETF provides exposure to small companies ideally positioned to take advantage of a tend that has seen marijuana go mainstream.

"Despite the recently strong performance of many of these companies, we do think that we're still in the early stages of what could be a unique long-term growth opportunity," Steve Hawkins, co-chief executive officer of Horizons ETFs, said in a statement.

The thing about ETFs is that they provide diversification to investors who want to spread out the risks of holding one or several stocks. But are 16 pot (and gardening) stocks inherently less risky than one?

The marijuana ETF certainly gives investors a relatively broad group of companies, taking the guesswork out of picking a winner. However, it leaves investors with an uncomfortable reality: Even as a group, these stocks are highly speculative, given the backdrop of steep valuations, low- to non-existent profits and a hard-to-define competitive edge.

This new ETF might make pot stocks look as though they have attained a new level of credibility with serious investors. Serious investors, though, should be rolling their eyes.

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HMMJ Holdings

CompanyTickerMarket Cap* ($ thousand CAD)Index Weight** (%)
Scotts Miracle-Gro Co. Class ASMG-N7,309,37310.00%
GW Pharmaceuticals PLC Sponsored ADRGWPH-Q4,382,98910.00%
Canopy Growth Corp.WEED-T1,884,25910.00%
Insys Therapeutics Inc.INSY-Q1,160,19010.00%
Aurora Cannabis Inc.ACB-X765,46010.00%
Aphria Inc.APH-T743,52010.00%
Cronos Group Inc.MJN-X412,3737.78%
Zynerba Pharmaceuticals Inc.ZYNE-Q370,8257.00%
OrganiGram Holdings Inc.OGI-X256,2504.83%
CanniMed Therapeutics Inc.CMED-T253,3004.78%
Emblem Corp.EMC-X216,8264.09%
Supreme Pharmaceuticals Inc.SL-CN203,5293.84%
CannaRoyalty Corp.CRZ-CN127,6092.41%
Emerald Health Therapeutics Inc.EMH-X103,9791.96%
ICC International Cannabis Corp.ICC-X94,2481.78%
Maple Leaf Green World Inc.MGW-X81,1451.53%
*As at March 2, 2017; **As at March 17, 2017.

Source: Horizons ETFs Management (Canada) Inc.

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